President Joe Biden and Republican House Speaker Kevin McCarthy on Monday evening failed to reach a fiscal deal to avoid defaulting on the US debt, but talks were set to continue, suggesting a deal could be reached.
The two met at the White House for a round of talks on a deal seen as critical to the U.S. and global economic outlook and the fate of financial markets.
“I think the tone was better tonight than any other time we’ve had discussions … We’ll still have some philosophical differences, but I felt it was productive,” McCarthy told reporters at the White House after the meeting. “We know the deadline. I think the President and I are going to talk every day. . . Until we do this.”
Biden later issued his own statement with the same assessment. “I just had a productive meeting with Speaker McCarthy on preventing default and avoiding a catastrophe for our economy,” Biden said. “We reiterated that default is off the table and the only way forward is in good faith toward a bilateral agreement.”
Earlier in the afternoon, Treasury Secretary Janet Yellen had warned that there was a “high chance” the US would be unable to pay all its bills by early June.
While Biden and McCarthy did not reach a final deal at the end of the meeting, they instructed staff to accelerate negotiations in an effort to seal an agreement that could pass both houses of Congress and be signed by the president.
McCarthy has refused to raise America’s $31.4tn debt ceiling, set by law, unless the White House and Democrats agree to deep spending cuts and new restrictions on eligibility for social safety net programs.
The standoff has dragged on for months, but only this month did Biden and the Republican president begin negotiations on a fiscal deal that could resolve the crisis. The president was forced to cut short a trip to Asia to return to Washington to continue negotiations.
The urgency for a deal became even clearer after Yellen repeatedly warned that time was running out before the Treasury ran out of money.
“The Treasury will not be able to meet all of the government’s obligations if Congress does not act to raise or suspend the debt ceiling by early June and before June 1,” Yellen wrote Monday afternoon. The latest in letters to Congress in this regard.
Both sides continue to blame each other for the recent conflict. The White House accused Republicans of being unaccommodating to “extreme” demands, and McCarthy accused Biden of backtracking on his position.
While McCarthy has faced pressure from the right wing of his party not to make more concessions to the White House, some Democrats are urging Biden not to cave to Republicans. Several Democrats have called on the White House to repeal the 14th Amendment to the Constitution, which would “shall not call into question” the “sustainability” of the U.S. public debt and continue borrowing above the limit.
While Biden said Sunday he believes he has the “authority” to do that, he said it may not be a solution in the short term.
Private economists argue that the government has a little more room to do so compared to Yellen’s projections. Oxford Economics on Monday estimated the Treasury could “squeeze” until June 14.
However, it cautioned that there is “no margin for error” and estimates related to incoming receipts, cash balances and other abnormal activities are subject to change.
Meanwhile, economists at Goldman Sachs predict the Treasury’s cash holdings will fall below $30bn by June 8 or 9. “At that time, we believe the Treasury will have fully exhausted its funds at that time,” they wrote. A note on Friday.